749
Volume 62 77 Number 4, 2014
http://dx.doi.org/10.11118/actaun201462040749
FORMALIZED PLANNING AND ITS
CONNECTION WITH THE DEVELOPMENT
OF REVERSE LOGISTICS: THE CASE OF SERVICES
Radoslav Škapa
11 Department of Corporate Economy, Faculty of Economics and Administration, Masaryk University, Lipová 41a,
602 00 Brno, Czech Republic
Abstract
ŠKAPA RADOSLAV. 2014. Formalized Planning and Its Connection With the Development of Reverse Logistics: the Case of Services. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 62(4): 749–755.
The best-in-class companies are able to retrieve 64 per cent of the original value of reverse fl ows, whereas it is only 12.5 per cent in average companies. Thus, reverse logistics is a challenge that may bring additional benefi ts. The article analyzes the planning range of reverse logistics in the Czech service companies, and it further notes the relations between planning and other characteristics of a company. Our results indicate that the ability to recognize diff erent connections of reverse fl ows in business (opportunities, threats as well as strengths and weaknesses) is one of the important factors that aff ect the advancement of reverse logistics in companies.
Keywords: planning, formalization, performance, reverse logistics, services, empirical research
INTRODUCTION
Reverse fl ows is an umbrella term for the fl ow of returned products, end-of-use products, recycled by-products, commercial returns (damaged products, recalled products, excess inventory etc.), packaging and other diff erent kinds of “waste”. The word reverse has a metaphorical character: the above mentioned materials do not always move in the opposite (reverse) way, which is typical in business relations, i.e. from a customer to the producer. When the reverse fl ow is sold in the business-to-business environment, it transfers from a seller to a buyer. However, the word “reverse” refers to the whole (closed loop) supply chain perspective.
Reverse fl ows are a natural part of the economy and even if they trigger extra cost, it is impossible to avoid them completely. On the contrary, there are several reasons that nowadays increase the impact of reverse fl ows on the business environment. To name a few, it is the lack of resources and environmental concerns (De Brito and Dekker, 2003), the emergence of the corporate citizenship concept (Jayaraman and Luo, 2007), or
an implementation of liberal return policies in retail that were supposed to support customer satisfaction and loyalty (Rogers and Tibben–Lembke, 1999), which was eminent and typical in the expanding e-commerce sector (De Brito, 2003).
whereas the cost of the average fi rms amounted to 12 per cent. All in all, reverse logistics is a challenge that may pay in the end.
It is the issue of the internal operations – reverse logistics organization – that this text focuses on. Specifi cally, it examines one aspect, which is the planning range of reverse logistics, and it further notes the relations between planning and other characteristics of a company.
The text is structured as follows: in the beginning, the objective of the research is introduced, followed by the explanation of the importance of planning in the reverse logistics context. The third section describes the research design and in the fourth section the results are presented and interpreted. Finally, managerial and theoretical implications are formulated in the conclusions.
Research Objective
The main objective of this paper is to describe the advancement of reverse logistics system planning on a sample of Czech service companies, and explore the connections to strategic motivations and perception of barriers and profi tability of reverse fl ows. The main objective is decomposed into the three research questions:
Most businesses face reverse fl ows, or their processing, respectively. We can note on the basis of foreign and domestic empirical observations that the extent of interest in reverse fl ows (here rather attention paid to reverse fl ows planning) diff ers a lot. Are there therefore strategic, long-term motives of interest in reverse fl ows, which are typical (i.e. occur more o en) in enterprises with advanced planning? In other words, is it possible to fi nd a connection between a certain type of motivation and maturity of (formalized) reverse fl ows planning? If so, this would be one of the indicators of the fact that a certain type of motives leads to the development of reverse logistics more than the other. The word indicator is mentioned because obviously, such a connection cannot be completely proved using a cross-sectional study (see used research design). This leads to the RQ1: Where do the motives of interest in reverse fl ows in enterprises with more developed planning diff er?
The second research question rather turns its attention from the causes (motivation) to the consequences: a created planning system is a mechanism that helps to solve certain problems and seeks to facilitate and streamline the control of reverse fl ows. If the company implemented such a control system, it can be assumed that it also aff ects the effi ciency of reverse logistics as well as its character. Therefore, it is realistic to expect that it (more or less) eliminates some of the barriers associated with the development and operation of reverse logistics (or it can also create new barriers). Identifi cation of diff erences in barriers can thus help to reveal aspects that eliminate or enhance the introduction of the system
of reverse fl ows planning. We can thus indirectly assume the consequences of formalized planning. Therefore the RQ2 is introduced: What do the perceptions of barriers to the development of reverse logistics in enterprises with more developed reverse fl ows planning diff er in?
The consequences of formalized planning are also related to the third research question, namely whether it is possible to fi nd a connection between the level of planning development and profi tability of reverse fl ows. RQ3 is defi ned as follows: What is the connection between the level of planning development of reverse fl ows and perceived profi tability of reverse fl ows, or reverse logistics, respectively?
Literature Review
Planning can be understood in a broader context as one of the methods / tools for control system formalization (Genchev et al., 2011; Bowersox and Daugherty, 1992). It is formalization in the area of logistics that is considered a crucial attribute of progressive enterprises (Autry, 2005), which can reduce costs, streamline operations and improve overall effi ciency and eff ectiveness of logistics; even though it entails negative consequences, its overall eff ect in logistics is positive (Bowersox et al., 1992, cited by Genchev, 2012). This positive correlation was demonstrated directly even for reverse logistics (see Autry, 2005).
The very existence of planning (as a tool of formalization) in the company naturally does not mean “progressivity of companies”, or economic success, respectively. Many empirical investigations conclude that formalized planning is associated with the performance of the organization; on the contrary, a considerable number of studies refute such a connection (Lyles et al., 1993). Richey et al. (2005) may serve as an example of the latter group as they did not prove a connection between formalization and effi ciency of reverse logistics.
However, ambiguities in the research conclusions are o en related to their precise targeting and methodology used: e.g. Baird et al. (1994) did not fi nd a connection with performance as long as it was measured as ROA and ROE, but they found a connection with the rate of sales increase (and similarly did Robinson and Pearce (1983)).
It should also be noted that the eff ectiveness of planning enhances mainly the range of resources that a company will provide for planning, (low) level of resistance of an organization to planning as such, or the ability to take into account trends around the organization – the so-called external orientation in planning (Ramanujama and Venkatramana, 1987): eff ectiveness is thus related to the scope and content of planning.
MATERIALS AND METHODS
Research Design
The following analysis is based on data from wider reverse logistics research in Czech enterprises, whose part it is. Character of the research and this study is exploratory and partially overlaps with a descriptive one. This corresponds even to the method of data collection: interviewing took place using a structured questionnaire in 2012. The obtained data were of a subjective nature, since most of the questions examined data enterprises do not follow (in a formalized way). Therefore, the data indicate the ideas and opinions of the respondents. Hard data was restricted only to identifi ers of companies, which the respondents talked about. One respondent was always talking about one (unique) company.
The questionnaire contained 27 questions, of which approximately one third were open questions; this article, however, is based only on 4 questions that were closed (or semi-closed). The content and wording of the questions were adopted from research papers of De Britto and Dekker (2002), De Britto, Dekker and Flapper (2005), Gecker and Vigoroso (2006) and Klapalová (2007). The answers are evaluated quantitatively here – the frequency counts and the following tools of bivariate statistical analysis were employed: Spearman rank correlations and Mann-Whitney U tests. The non-parametric instruments were chosen because of the ordinal nature of variables. All calculations were conducted in the SPSS v. 21).
The Research Sample and Its Justifi cation
Because the broader research, whose part is also this text, deals with reverse logistics especially in the service sector, even the presented study is based on data for businesses providing services: the research sample consists of 146 companies (most o en restaurants and hotels). The absolute majority of the businesses are small (78%), while 14% of them are medium, and there are only 8% of large companies in the sample.
Selection of companies was based on the existence of direct and mediated personal contacts with representatives of businesses (convenience sampling). This procedure partially broke the random selection rule with all its negative consequences; in this situation, however, it was the only feasible way to obtain a suffi cient number of respondents. With regard to the prevalent exploratory focus of the research, it does not represent a problem which completely rendered the obtained data worthless, and therefore the researchers accepted this procedure.
Services were chosen for two reasons: fi rstly, reverse logistics is very industry-specifi c (Rogers and Tibben-Lembke, 1998); therefore it is more likely to uncover new correlations and connections if we work with a more homogeneous sample.
The second and more important reason is the fact that companies providing services are neglected in research related to reverse logistics, or logistics in general or the issue of supply chain management in services is out of the main interest of researchers, respectively. Nevertheless, it is clear that even though we follow the traditional defi nition of reverse logistics (“The process of planning, Implementing, and controlling the effi cient, cost-eff ective fl ow of raw materials, in-process inventory, fi nished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.” Rogers and Tibben-Lembke (1998, p. 2)) and do not include information (e.g. complaints – feedback) in reverse fl ows, we can still fi nd reverse fl ows in services, and it is then clear that these companies have to deal with them to some extent. E.g. Fitzsimmons and Fitzsimmons (2011) called the material fl ows in services as facilitating goods, and they are one of the fi ve components of the service package.
RESULTS
The main investigated variable is the range of reverse fl ows planning. The subsequent analysis uses a procedure that expresses the extent of reverse fl ows planning on the basis of data on whether the reverse fl ows are planned on the individual planning levels (in each case a dummy variable), i.e. at the level of a strategic corporate plan, a strategic plan for a function / company department, a tactical and operational plan (see Tab. I). Using these data, an index refl ecting the degree of “inclusion” of reverse fl ows in the planning mechanism of a specifi c fi rm was established. The index originated as a weighted sum where the higher planning levels had higher weight (set arbitrarily): the existence of the plan for reverse fl ows was assigned the value of 1 (for operational planning) to 4 (presence in the strategic plan). The resulting value was determined for each company as the sum of these values (1–4) depending on which planning levels were present in the company. This indicator, whose value rages from 0 to 10, is also labeled as planning index (for the distribution of its values see Fig. 1).
Results of the poll showed that the majority of companies plan reverse fl ows to some extent: only 16% stated that they do not plan reverse fl ows at all (index value 0). The index shows another two extremes – value 1 (only operational planning) and 10 (planning at all levels). These data are very similar to the fi ndings concerning Czech manufacturing companies in the years 2009–2010 (see Škapa and Klapalová, 2011); the only exception is operational planning, which had been claimed by 69% of businesses (which is two times more).
of reverse logistics, and thus an indicator of the level of interest in this area. Out of 15 diff erent reasons (compiled based on a literature review, see Škapa and Klapalová, 2011), 10 reasons occur more frequently in companies with more developed planning (i.e. businesses that gave these reasons have a statistically higher value of the planning index, in this case measured by the median value) – see Tab. II. Moreover, even customer satisfaction is at the commonly accepted threshold of reliability; in fact, we can talk about 11 rather than 10 reasons. Generally, the companies that plan reverse fl ows more thoroughly give or are able to identify more
reasons (the correlation between the number of reasons and the planning index is Spearman rho = 0.345; p = 0.000).
We can make a preliminary conclusion from this result that the ability to recognize diff erent connections of reverse fl ows in business (opportunities, threats as well as strengths and weaknesses are expressed here as reasons of interest) is one of the important factors that aff ect the advancement of reverse logistics (here measured according to the level of planning development).
I: Share of the companies planning the reverse fl ows (n = 146)
Planning level % Weight in index calculation
Corporate strategy plan 55 4 Function/department strategy plans 65 3
Tactical plans 58 2
Operational plans 32 1 No plans – managed ad hoc 50 0
Note: The question was formulated as a multiple choice. Therefore, the choice of “no plans” together with other answers means that a company partly combines planning and ad hoc decision making. Companies most frequently combine the ad hoc and operational planning level.
0.0 5.0 10.0 15.0 20.0 25.0
0 1 2 3 4 5 6 7 8 9 10
1: Distribution of planning index in per cent (n = 146)
II: Reasons of interest in reverse logistics (n = 144)
Reasons yes in % PI median no in % PI median Mann-Whitney U p
RQ1 examines the connection between the advancement of planning and barriers to further development of reverse logistics; in its background there is the assumption that planning and the associated formalization of reverse logistics removes some of the barriers to the development of reverse logistics, or certain barriers become irrelevant due to circumstances related to planning development.
The evaluation procedure was the same as in the previous case: dummy variables (that are indicative of the perceived barriers to the development of reverse logistics in a company) were correlated with the planning index. We can see from Tab. III that there is a connection between planning and the perceived barriers to the development of reverse logistics for 5 out of 17 barriers (if we would accept lower statistical signifi cance – = .055, the number of these distinguishing barriers would be even 7).
The most important diff erence can be seen in the barrier concerning the importance of reverse fl ows (unimportance of reverse fl ows compared to other activities): companies that created a planning system report unimportance less o en as a barrier to further development; if these companies invested energy in developing plans (they considered such an investment as relevant), it is natural that the opinion regarding unimportance will occur less frequently here. Similarly, the barrier of “unclear policy for reverse fl ows” is less frequent (p = 0.052); it is the existence of plans (or their contents) articulates / defi nes this policy. In addition, the idea that the insuffi cient performance measurement
of reverse logistics constitutes a barrier is less frequent (p = 0.051), which probably means that when defi ning their plans businesses also create (more or less sophisticated) ways to monitor whether the plans are implemented; thus they create a system performance measurement of reverse logistics.
On the other hand, they o en consider the lack of funding for further development of this area, “Lack of technical equipment”, “legislation” and “inattention to environmental aspects of business activities” as a barrier – see the higher median values of the companies that reported these barriers. The barrier associated with fi nances may be based on the fact that companies know how to improve their reverse logistics and they hit just their fi nancial possibilities. The “Lack of technical equipment” can be justifi ed similarly: companies are familiar with the technology of processing reverse fl ows and they realize their technological obsolescence. To justify the infl uence of legislation, a further analysis would be needed, as well as in the case of inattention to environmental aspects, which is a surprising result.
To answer research question 3, a correlation between the planning index and the perceived profi tability of reverse logistics was calculated, and it was expressed as a percentage by which reverse logistics increases or decreases the overall profi t of the company. The Spearman correlation was positive and statistically signifi cant (rho = 0.195; p = 0.046). Businesses therefore seem to perceive the connection, or the planning eff ect, on the profi tability of reverse logistics. The idea that the causal link would be reversed (i.e. that
III: Barriers to reverse logistics (n = 133)
Barriers yes in % PI median no in % PI median Mann-Whitney U p
Lack of staff resources 46 5 54 3 1729 .069 Lack of systematic management 44 3 56 4 1969.5 .346 Lack of know-how 41 3.5 59 4 2044 .68 Financial resources 38 6 62 3 1548.5 .013* Insuffi cient performance measurement
of reverse logistics 36 3 64 5 1627.5 .051 Unimportance of reverse fl ows compared to
other activities 35 1 65 4 1520.5 .021* Product nature 34 3 66 4 1596.5 .065 Power of customer 30 4 70 4 1721 .49 Legislation 23 6 77 3 960 .001* Indefi nite policy for reverse fl ows 22 1 78 4 1419.5 .052 Strategy /corporate policy 21 4 79 3 1222.5 .167 Lack of technical equipment 16 7 84 3 812.5 .023* Inattention to environ. aspects of business
the profi tability of reverse logistics is the cause or condition of its planning) is very questionable. In fact, it is not clear how would a company achieve reverse logistics profi tability without formalized management (i.e. planning), and even if it succeeded, why would it decide to increase its cost by making plans of an area that works well by itself.
CONCLUSIONS
The purpose of planning (and, more generally, formalization) is to align the business operation with the stated strategic objectives (Autry, 2005). Our empirical data show that companies try to achieve this compliance; however, reverse fl ows planning is not developed at all levels of the planning hierarchy in most companies, which is indirectly evidenced by lower interest of businesses in reverse fl ows. The result is thus similar to fi ndings by Mollenkopf et al. (2007). Moreover, these authors confi rmed a positive connection between planning (formalization) and reverse logistics effi ciency. Further recent studies confi rming this connection include e.g. Pfohl et al. (2012), and Škapa (2012) in the Czech environment. These listed studies can be supplemented by the presented study that also identifi ed the mentioned connection in reverse logistics (rho = 0.195; p = 0.046).
However, the main benefi t of the study should be seen elsewhere: fi rstly, the study demonstrates that rules and experience applicable to reverse logistics (the contribution of planning in this case) will be at least partially relevant even to the service sector, despite the fact that the material dimension of the provided product is smaller in service, i.e. that the scope and importance of reverse fl ows is lower here than in manufacturing companies, and the fact that providing services is a process o en involving customer participation; the diff erence lies in what is processed and also how it is processed.
Secondly, the study does not examine the connection between planning and relatively general constructs (such as resource commitment, supply chain orientation, or functional orientation, which are examples of constructs used in the studies cited), but it tries to identify in detail relationships concerning various motives and barriers. The result is a fi nding (RQ 1) that there is a correlation
(rho = 0.345; p = .000) between the extent of planning and the number of diff erent motives (reasons) that businesses are able to recognize. If we generalize this fi nding, we can see that it is important that the companies realize diff erent connections of reverse logistics, and especially their positive impact on the companies. It is the awareness of the diversity of motives can have a signifi cant correlation with the level of reverse logistics development, and subsequently with the positive eff ects of reverse logistics on company profi tability.
The analysis of barriers (RQ 2) then showed that a more sophisticated planning system is connected to other barriers: instead of barriers such as “unimportance of reverse fl ows …”, or “Indefi nite policy”, the focus of companies is shi ing more to the lack of funds, “inattention to environmental aspects of business activities”, “legislation”, or “technical equipment”. These changes can be interpreted similarly: advanced planning is an indicator of higher interest in reverse fl ows. We can assume that such businesses have a larger know-how (due to higher interest and experience with more formalized procedures), and they are able to recognize opportunities to technically streamline their reverse logistics – this is why they also “hit” fi nancial, technical or legislative barriers more frequently.
The word knowledge/know-how was mentioned here several times: managers’ knowledge of reverse logistics, and this is the area that further research could focus on because the interpretation of the results suggests that this variable can be in the background of the identifi ed relationships (as a confounding variable).
Finally, we should mention limitations associated with this research: namely the scope of planning is described using the planning index (a one-dimensional construct). This becomes problematic in situations where planning is identifi ed with a degree of formalization, which is a wider, multidimensional construct. It then results in a certain inaccuracy. In relation to the research design applied, limitations also involve the fact that data about a company come from one respondent (a single informant problem), which allows some data to be signifi cantly infl uenced by the perception of a concrete individual.
SUMMARY
The paper describes the advancement of reverse logistics system planning on a sample of 146 services companies operating on Czech market, and further explores the connections to three variables: motivation for reverse logistics, its barriers and perceived profi tability.
even to the service sector, which is characterized by intangibility of most of their products (i. e. by limited extent of material reverse fl ows used in the operations).
Acknowledgement
The Czech Science Foundation supported this paper as part of the project called Reverse Flows Management as a Means of Value Creation (GA13-14704S).
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